Apple, Samsung Reportedly Ink 14-nm Foundry Deal

SAN FRANCISCO -- South Korea's Samsung Electronics Co. Ltd. will build 14-nm processors for future Apple Inc. iPhones and iPads under the terms of a deal signed over the weekend, according to a report by the Korea Economic Daily.

According to the report, Samsung will build 14-nm A9 processors for Apple with FinFET process technology starting in 2015. The A9 will be used in Apple's iPhone 7.

Apple has used Samsung as its chip-making foundry since it started designing its own custom processors for its smartphones and tablets several years ago. But the relationship between the two companies has become strained in the past couple of years, including several high-profile patent litigations in several countries (see Apple-Samsung trial coverage).

Bill- good point about Samsung's ability to also supply DRAM and flash. I'm sure buying all three from Samsung does give Apple some pricing leverage, too. Given that, why does IC Insights see Apple slowly moving away from using Samsung for foundry? Obvioulsy the competitition between the two companies in the courtroom and the market place must make for an interesting supplier relationship. Is that why you think they'll move away from Samsung?

Dylan- Yes, we believe the competitive situation between Apple and Samsung at the system level is a growing concern for Apple with regards to its chip supply from Samsung.

Overall, I believe that this situation kind of "snuck up" on Apple. In 2010, Apple purchased about $1.2 billion worth of foundry ICs (i.e., not including memory) from Samsung. That same year, Samsung was ranked 5th in smarphone sales (24 million handsets) behind Nokia, Apple, RIM, and HTC, with little to no presence in the tiny emerging tablet PC market. However, in 2013, just three years later, Samsung is expected to be by far the largest supplier of smartphones worldwide (shipping about 300 million) with Apple a distant second with 180 million smartphones shipped this year. Moreover, IC Insights expects Apple to buy about $6.0 billion worth of foundry ICs from Samsung in 2013, a staggering 5X surge from 2010.

At this time, this is truly a marriage of convenience for Apple, but the company is definitely motivated to establish other relationships.